I recently saw a report on the number of American companies purchased by Chinese companies. That number was just under 500, so I wondered how many Chinese companies were bought by American companies during the same timeframe?
I did an extensive amount of research and found the number is zero. I’m a pretty good researcher so I may have missed some, and if you know of one, let me know. How is it possible that American money hasn’t bought direct ownership of any company founded in China? I have seen some joint ventures, but from what I can tell the goose can buy, but not so the gander.
If a foreign government-controlled company wants to buy a US company, the transaction might have to be approved by the Committee on Foreign Investment in the United States (CIFUS,) a group under the Department of the Treasury. From its founding in 1988, there have been 2,380 proposed transactions. Out of these proposed transactions, 219 were investigated, 117 were withdrawn, and the president alone decided 15. Only the president can prohibit a transaction. Over 25% of all the cases decided in the previous 28 years were determined by the Obama administration. Of note, this process only deals with transactions that have potential National Security issues.
Enough of the gobbledygook. Let’s look at a real case.
President Trump is meeting this week with President Xi Jinping, the leader of China. I suspect there will be some discussion about trade. Chinese direct investment into the U.S. hit a record $15.7 billion in 2015, up 30 percent from the year prior. This is according to economic analysts at the Rhodium Group. When Chinese companies buy in the US, they usually do not change the name of the company. For instance, Smithfield Ham. Can you imagine what would happen to US sales if a Chinese company changed the name to General Wo Pork? Not changing the name is a way to keep a low profile and not let people know a US company was sold to a Chinese firm.
Trade talks will have to deal with the inability or reasons why American investors are unable to buy Chinese companies. Discussions should also include high tariffs charged by the Chinese government for American goods shipping to China. Let us look at a deal on the table right now. This is a company that transfers money overseas. I have used them several times for my foundation in which I buy products from China. The company in play is MoneyGram. They are a Dallas-based financial service company that wires money for a fee all over the world. It operates in 200 countries through 350,000 locations where transactions are conducted in person, and it also has a significant online presence.
Let me pause for just a moment to add, I’m a Registered Investment Advisor with 43 years of experience. There are very specific rules in America concerning financial disclosure for public companies. In China it is difficult to gain similar information on ownership and the financial condition of corporations. With that as background, let us move on. There is a company interested in buying MoneyGram. It is Ant Financial, a Chinese digital financial service provider that Jack Ma, the principal owner of Alibaba, among many other diverse interests, exerts some significant control.
This transaction will connect MoneyGram and Ant Financial to complementary services. MoneyGram will then be able to leverage Ant Financials global network of over 630 million users. The transaction will also help expand Ant Financials business in new global markets. Ant financial recently formed partnerships with Paytm in India, which has approximately 180 million users, and Ascend Money in Thailand. At risk here is over-concentration in the financial service business, namely the transfer of money on a global basis.
I believe the US Treasury’s Committee on Foreign Investment in the United States (CFIUS) must approve this deal, because it concerns significant national security issues on the flow of money and the concentration of power and influence. This deal also presents some significant concerns on personal data being controlled in China. At a time when all the headlines scream about hacking and cyber security issues, we must be sure as much as we can that we are protecting the privacy rights of Americans. China is a serial trade abuser and does not allow reciprocal investment. China has a questionable history of not honoring its agreements. Perhaps closer scrutiny of this deal will give President Trump the leverage needed to strengthen our free trade relationship with China. However, I believe CFIUS should disallow this deal.